Making Life Insurance Easy
Here are some frequently asked questions by people considering buying life insurance for their family.
Q: What is the difference between term and whole life insurance?
A: Term life insurance provides coverage for a set period of time and usually has fixed monthly premiums. The period (or term) of the coverage can be either a fixed number of years (e.g., 20 or 30 years) or to a set age (e.g., age 65). If the death benefit is not claimed during the specified term, however, the policy has no residual cash value.
Whole life is permanent life insurance that, while typically more expensive, provides coverage for your entire lifetime. It too has fixed premiums, but whole life policies build up a cash value, tax deferred, over time. Whole life policies include features that allow policyholders to withdraw or borrow against the cash value, if needed, during their lifetime.
Q: I’m buying life insurance for the first time. What key things do I need to focus on?
A: People purchase life insurance at different ages and life stages and for different reasons. Some choose a policy to cover their final expenses to ensure that loved ones are not burdened with the high cost of a funeral, estate taxes and debts. Others choose insurance that will ensure their family a comfortable quality of life once the policyholder is gone.
The best policy is one that you will have for a long time and that will cover your needs now and grow with you in the future. Are you considering buying a house or having children in the future? Ensuring that your needs are covered in both the short and long term will make sure you get the most for the premiums you pay.
For a handy guide to life insurance, visit the Canadian Life and Health Insurance Association’s website (clhia.ca) and read their Guide to Life Insurance.
Q: I have some life insurance through my employer. Should I consider getting more?
A: Group insurance policies are a strong benefit offered by some employers. Start by asking your benefits administrator for the details of your coverage. It is often expressed as a percentage of your salary.
When thinking about topping up your coverage with an individual policy, there are a few things to consider. For instance, if you don’t anticipate staying at your employer until your need for life insurance has passed – perhaps until your children have graduated or a mortgage has been paid off – individual insurance can play an important role in your financial planning. For others, group insurance doesn’t provide enough coverage; an individual policy can be used to top up what is provided at work.
Either way, remember that individual policies will stay with you no matter where you work and after you’ve retired, so you will always have the coverage you need.
Q: We have a new child (or grandchild). How does this change my family’s life insurance needs?
A: Life events, such as the birth of a child or grandchild, are important times to review all your financial plans. But especially with the arrival of young ones who depend on you, a review of your estate plan is a sensible step.
If your family is growing, you’ll want to ensure the coverage you have will provide for them until they can look after themselves. If you have post-secondary dreams for them, tuition costs should be factored into your plan. And if you or your partner passes away, would the other have to pay for additional child care to maintain your standard of living? These are all important considerations for planning for your child’s future
With the excitement of grandchildren, you will want to talk to your insurance professional about how to best preserve your legacy for them, minimizing taxes and any final expense burden on your children. You may also consider the gift of an insurance policy for your grandchildren, such as Sons of Scotland’s Wee Thistle policy. A policy purchased when the policyholder is young can be converted to a whole life plan, ensuring they’ll never be without coverage, and costs will remain low for their entire lifetime.
Q: We’re researching mortgages for a new home. What’s the difference between mortgage insurance and life insurance?
A: Both types of insurance pay out when you die. But otherwise, they are very different, and it is worth shopping around to determine your exact needs.
Mortgage insurance premiums stay the same throughout the term of your insurance (5 years, for example), but the payout, if there is one, shrinks as you pay down your mortgage. The payout is directed to the mortgage lender. If you switch lenders, or when you renew your mortgage, you have to renew your policy.
Term life insurance typically covers you for an equivalent or longer term, say 10, 20 or 30 years, but the amount is paid out to a beneficiary of your choosing. This means your beneficiary can decide what to do with it: pay down the mortgage, repay student debt or something else specified in your final wishes or that’s important to your family’s financial future. Premiums are stable throughout the term, and many policies let you renew (although your premiums may change when you do).
Q: I’m nearing retirement. What should I consider about life insurance?
A: As you prepare to transition to the next stage of your adventures, it’s a good time to check your estate plans. Key questions to review and discuss with your life insurance professional include the following:
- Will my group insurance continue beyond my employment? If so, at what level and for how long?
- What are my insurance needs looking ahead? Do I have debts or savings to cover?
- Are my will and estate plan up to date?
- Can I ease the financial burden on my children or provide for my grandchildren?
Regardless of your answers to these questions, major milestones in life, such as retirement, are a perfect time to review and reassess your life insurance needs.
Q: When I buy insurance, do I have to get a medical test or share my medical records with you?
A: Not always. Some policies do not require these steps because the coverage is smaller and/or is calculated based on simpler types of life insurance. When underwriters require health details it’s so that they can calculate the most appropriate premium for your health situation, to guarantee payout upon death. This just means they accept the risks before you get a policy, so you can rest assured that the insurance payout will be available when it is needed.
At Sons of Scotland, our licensed professionals are trained to be sensitive and discreet with your personal information.
Q: I would like to learn more about life insurance. Can you refer me to other credible sources of information?
A: Here are four resources that we find to be unbiased, factually correct and focused on Canadian insurance content: